Morgan Stanley: The Fed is now expected to slow down the pace of balance sheet reduction starting in June

On January 21st, Morgan Stanley economists stated that the Federal Reserve will announce a plan to slow down its balance sheet reduction in May and begin the process in June. Seth Carpenter and others at the bank wrote that they expect the Federal Reserve to "elaborately" discuss the balance sheet issue at the next three FOMC meetings, announce the scale and scope of the slowdown in May, and begin the process in June. Morgan Stanley previously predicted that the Federal Reserve would start slowing down its balance sheet reduction in September of last year. The bank still maintains its expectation that the balance sheet reduction will end in February 2025. It is expected that the overnight reverse repurchase tool usage of the Federal Reserve will drop to $250 billion by May or June.